Question

Komoka Enterprises needs someone to supply it with 156,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $956,000 to install the equipment necessary to start production. The equipment will be depreciated at 30% (Class 10), and you estimate that it can be salvaged for $101,000 at the end of the five-year contract. Your fixed production costs will be $451,000 per year, and your variable production costs should be $16.70 per carton. You also need an initial net working capital of $106,000. If your tax rate is 35% and you require a 12% return on your investment, what bid price should you submit? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Answer 1

ANSWER:

Bid Price = $21.55 per carton

Note:

=> Depreciation rate (CCA) is 30%

=> Working capital is assumed to recover at the end of 5 years

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